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Changes to help us win the game?

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  • Avatar BillyBob MD 
    Participant
    Status: Physician
    Posts: 3
    Joined: 06/04/2019

    Another newbie looking for advice from the hive. I’ve been lurking here for the past year or so, and feel like I have already corrected so many mistakes, but I’m looking at what else I can do to improve our odds of FI.

    Our situation: I’m married, 4 kids, in our late 30’s. Wife is a stay at home mom/homeschooler, and my annual income is roughly $400k. I have an specialty specific disability policy that would pay $12k/mo, and a $2 mil term life policy.

    Assets: 401k=$310k

    Cash Benefit Plan=$80k

    Roth IRA (x2)=$25k

    HSA=$15k

    Multifamily Syndication=$50k

    Debts: zero (student loans, cars, and mortgage paid off)

    Plan: We have just over $100k of tax-advantaged space per year between the different accounts that we plan to fully take advantage of from here on out. Obviously, we prioritized debt elimination over retirement investing for the first 6 years of attending-hood, and I have only maxed out those accounts the past 2 years. It feels good being debt-free, but knowing what I know now, I would have done it differently and started maxing out those tax-advantaged spaces earlier. Unfortunately, that now puts us in a place where we need to play a bit of catch up. Currently, our stocks/bonds ratio is roughly 90/10, with plans to gradually end up at 50/50 at retirement. Our state doesn’t offer a tax break for 529 contributions, and so up to this point we’ve decided to skip it. Obviously, not having a mortgage is going to free up some cash that is going to need to be invested in order for us to reach our goals, and we plan to push that into a taxable account that I just opened, invested similarly to our 401k. We would also like to invest in more syndication deals when a good opportunity comes up. I’m hoping to be able to put an additional $40-50k/year at these other options, which would put our total yearly contribution at roughly $150k, or 37% of our annual income.

    Goals: Currently working full-time in EM, but would love to start cutting back in a few years, and go half-time at about 55, or whenever we reach FI. We travel a bit, and have a few toys, but are not big spenders (no luxury cars, second homes, or exotic trips). Our kids will likely go to college, and we plan to pay for tuition and living expenses, but I have no intention of forking out $50k/year in tuition for a private liberal arts school, and our kids understand that. Our oldest two have started taking classes at the local community college with plans to transfer to a university when they have enough credits to do so as transfer students.

    What changes would you make? Sure, I could take some equity out of our home (value $900k in moderate COL area) in order to invest it, but I don’t know how I feel about that as being debt-free gives us some freedom, and I’m pretty sure my wife would object. We plan to be in the house for at least 10-15 years, at which point the kids will be gone and we plan to downsize. Would your prioritize the 529 over a taxable account, or am I on the right track in planning to just pay out-of-pocket for college?

    Thanks in advance.

    #219071 Reply
    wonka31 wonka31 
    Participant
    Status: Physician
    Posts: 701
    Joined: 03/24/2018

    What’s your annual spend? Are you planning on paying for your kids to go to college? If so, you should create a second account, 529 or otherwise, for that so that potentially huge expense doesn’t sneak up on you.

    #219120 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3523
    Joined: 01/14/2017
    Our state doesn’t offer a tax break for 529 contributions, and so up to this point we’ve decided to skip it.

    Click to expand…

    This isn’t a reason to skip out on a 529.  4 kids, 400k salary, college costs increasing with no assistance coming your way.  I don’t know how old your kids are, but I agree with Wonka.  You might reach FI only to realize a deluge of expenses are coming your way.

    Not a fan of these syndication deals.  I would max out your tax-advantaged plans and plow the rest into taxable.  Live frugally.  Nice job on killing all the debt.

    #219125 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2859
    Joined: 01/03/2017

    You’re a physician in the US, all you have to do is not actively lose. Your portfolio is already heavily weighted towards real estate with your paid off house. I would continue your aggressive savings but skip the syndication deals. As far as a 529, if you are planning on helping your kids for college, I would look harder into it or open a separate taxable account so you maintain some flexibility for the money. As long as your expenses aren’t crazy, which is doesn’t sound like with how much you’re planning to save each year, the game being won is just a matter of time.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #219147 Reply
    Avatar nephron 
    Participant
    Status: Physician
    Posts: 227
    Joined: 05/09/2019

    I agree with not getting too heavily into real estate and going more into stocks, either through retirment plans for taxable accounts.  It sounds like you guys have never met with a financial advisor, I would advise a one time flat fee advisor just to go over the benefits of a 529 plan and look at your other investments.   I met with one 10 years ago, and as long as you have a half way decent one, they should be able to point out mistakes you are making (eg not saving in retirement accounts before paying off the house) that can end up saving you more then their fees.

    #219158 Reply
    Faithful Steward Faithful Steward 
    Participant
    Status: Financial Advisor, Small Business Owner
    Posts: 519
    Joined: 06/12/2017

    I have an specialty specific disability policy that would pay $12k/mo, and a $2 mil term life policy.

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    Have you run the numbers to ensure that this is adequate life and disability protection? If you were disabled for an extended period of time, would $12,000/month allow you to live your lifestyle, save for or cash-flow college, and continue to fund your retirement savings? Would $2M truly take care of your wife and children? If not, getting adequate protection of your future earnings potential is the foundation upon which the rest of your plan should be built.

    Debts: zero (student loans, cars, and mortgage paid off)

    Click to expand…

    Well played, BillyBob!

    Our state doesn’t offer a tax break for 529 contributions, and so up to this point we’ve decided to skip it.

    Click to expand…

    Not sure I understand this logic. Sure, there’s no state income tax deduction. But, the tax-free growth and use of the funds for qualified education expenses is an extremely valuable benefit. This is applicable if your younger kids are more than 5 years away from college. If you don’t have at least a 5-year window for growth, you’re really a saver, not an investor. In that case, I’d explore one of the pre-paid tuition 529 Plans where your return would simply be the inflation rate of tuition. The other option, if you have a short time horizon for college, would be to cash-flow it.

    Sure, I could take some equity out of our home (value $900k in moderate COL area) in order to invest it

    Click to expand…

    No! Don’t even entertain this idea.

    Michael Peterson, CFP® | Faithful Steward Wealth Advisors
    https://ProsperousPhysician.com | (717) 496-0900

    #219171 Reply
    Liked by Kamban, ENT Doc
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1863
    Joined: 02/11/2019
    Earnest refinancing bonus

    Welcome to the 4 kid club.  I do not know the ages of your kids but mine are compressed so we will be paying multiple tuitions at once.  I find the 529 as a nice way to take the edge off of it.  Even without a state tax benefit the tax free gains are nice.

    Even though you might be behind on retirement savings you did good things with your money and unleveraged yourself.  True it would have been better to take more advantage of the tax advantaged accounts but in the end it will not matter too much.

    If you do as you plan and max your retirement accounts and save more on top of that you will be fine.  I also do not invest in RE or syndication deals.  I just throw everything into VTSAX in a taxable brokerage account.

     

    Keep up the good work!  Welcome to the forum.

    “Never let your sense of morals prevent you from doing what is right.”

    #219179 Reply
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2490
    Joined: 08/01/2016

    Our oldest two have started taking classes at the local community college with plans to transfer to a university when they have enough credits to do so as transfer students

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    Looks like a couple of kids are almost ready to enter college. You won’t have the tax break and might not have much time for growth on a 529 invested now for those 2 kids. Maybe 529 might benefit the other two.

     

    What changes would you make? Sure, I could take some equity out of our home (value $900k in moderate COL area) in order to invest it,

    Click to expand…

    Bad idea

    Currently working full-time in EM, but would love to start cutting back in a few years, and go half-time at about 55, or whenever we reach FI.

    Click to expand…
    Take care of maxing retirement funds and invest in index funds rather than trying to do syndication. Depending on how much you want to help your kids, you might be working full time a bit longer than you foresee now. Unless you have burnout issues that might be OK.

     

    #219206 Reply
    Avatar BillyBob MD 
    Participant
    Status: Physician
    Posts: 3
    Joined: 06/04/2019

    I’d estimate that we probably spend about $120k/yr, but that is likely to go down significantly as we just recently paid off the cars, student loans, and house. I will definitely look into a 529. It’s probably a little late to be very helpful with the older two, but we may get some benefit for the younger two. Our age range is 15-7. With respect to our disability/life insurance I am pretty comfortable with the amounts. We might not be able to maintain our exact standard of living, but it would be close, and with no debt, I don’t think it would be a huge adjustment.

    #219264 Reply
    Liked by adventure
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3088
    Joined: 09/18/2018

    Pardon the interruption. Not sure your intent on your children’s college plans. You mentioned only tuition. In today’s dollars, cost of attendance per year is “cheaply” $25k per year. Good ol boy with the age of your kids being 15-7, you are probably overestimating your ability to cash flow things.
    You plan in saving $150k per year. Is that retirement, college and replacement cars? Do you think $120k for a family of 6 is going to hold when the kids are 10-18 (3 years from now)?
    $50k a year for 8 years covers the college ($400k). The challenge is are you going to make up ground on the retirement on top of that or short the college? Throw in 2 or 3 cars in ten years? You get my point, transportation for a family of 6, college funding, and retirement savings are going to collide. I think you are aware of this, this the idea of tapping the equity of the house.
    With no debt and $400k income it’s not a huge problem but set your targets for retirement, college and vehicles for the next 10-15 years and see where you need to adjust. Coincidentally, that’s when you will be 55, your target for cutting back from full time. By the way, some great education opportunities cost way more than $25k per year.

    BillyBob, this ain’t your first rodeo. I’ll bet you a beer. Ain’t no way a family of 6 doesn’t add a car or two with a $900k house. Your wife can’t taxi four teens at the same time. Figure two more cars.
    I’ll meet you at BillyBob’s in Ft Worth. Stay away from the syndicated deals. You got this just fill in the details.

    #219307 Reply
    Avatar adventure 
    Participant
    Status: Spouse
    Posts: 1186
    Joined: 10/24/2016
    It’s probably a little late to be very helpful with the older two, but we may get some benefit for the younger two. Our age range is 15-7.

    Click to expand…

    Remember, you can use it for year 1, or year 4… or for graduate school too, so there are plenty of years for it all to be invested.

    #219332 Reply
    Avatar EndoRobert 
    Participant
    Posts: 71
    Joined: 01/12/2019

    I’d make zero changes to win the game. Keep saving 150k/year, invest in something reasonable, and you’ll be fine.

    That said, I agree with Tim (being fine doesn’t automatically mean I think you’ll be able to go part time at 55). Million dollar house and four kids ages 7-15, you’re gonna have relatively high fixed expenses for the foreseeable future.

    If dumping 100k into tax advantaged, spending 120, paying roughly 100k in taxes, this leaves you with 80k leftover, of which you say you’re gonna invest 50k (someone correct me if I’m missing something). If you really want to cut back and then half time at 55, this last 30k has to go to college funding or investing but definitely not yearly consumption. Obviously, if you wanna do half time until 70 as opposed to 60 this makes a tremendous difference in your financial outlook.

    More generally (and I’m young so this may end up being me too), but it’s rare that my hospital’s older docs don’t have at least one 20-something kid on the payroll in some capacity. N of 1 but just my experience.

    #219356 Reply
    Liked by Tim

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